Home Depot to Investors: Mea Culpa

The chief for the home improvement chain will try to make up for past mistakes by laying out his vision for the future at its annual meeting Wednesday.

MICHAEL BARBARO

It was, as even Home Depot executives will concede, a 37-minute fiasco.

In a basement hotel ballroom in Delaware, with the board nowhere in sight and huge timers on stage to cut off angry investors, Home Depot held a hasty annual meeting last year that attendees alternately described as “appalling” and “arrogant.”

Don’t expect a repeat performance this year.

Home Depot’s annual meeting, scheduled for tomorrow, will strike a far warmer, inviting tone, with members of the board in prominent attendance and the company’s folksy new chief executive fielding dozens of shareholder questions — sans digital timers.

Frank Blake, the chief executive, will purposefully distance himself from his predecessor, Robert L. Nardelli, by reviewing the state of the chain’s business (in 2006, Mr. Nardelli didn’t bother), acknowledging the problems it faces (ditto) and laying out his vision for the chain’s future (Mr. Nardelli left the stage after a vote on shareholder proposals).

There is a lot riding on the performance. Mr. Blake has won over critics of Mr. Nardelli with his low-key, humble approach, but this meeting is his biggest chance to show investors publicly how much the company — and the board — have changed since last year’s debacle.

“It would be impossible to have a meeting worse than last year’s,” said Richard Ferlauto, director of pension investment policy at the American Federation of State, County and Municipal Employees, a union. “Anything they would do is an improvement.”

Attendees are looking for change in another area, too: Home Depot’s flagging performance. Profit fell 30 percent in the first quarter of this year, and sales at stores open at least a year plunged 8 percent. As the typically candid Mr. Blake put it: “While we expected a tough quarter, this was worse than we anticipated.”

The company has blamed the weak housing market, which has also put a dent in the profits of its main rival, Lowe’s. But analysts worry that low morale among Home Depot’s employees, combined with management’s lack of investment in the stores, has turned off shoppers who have decks to build and kitchens to renovate.

Mr. Blake has begun to confront both issues, considered a legacy of Mr. Nardelli’s tenure, hiring experienced plumbers and electricians as store employees, eliminating unattainable sales goals for managers and setting up a $3,000 fund at every store to reward workers.

But a turnaround could take time, and it is unclear how much patience Wall Street will have for quarter after quarter of slipping sales. So far, many analysts are giving Mr. Blake, who was named to the top job in January, the benefit of the doubt. “I am confident enough to give him the time,” said Steve Chick, an analyst at JPMorgan.

The good will toward Mr. Blake has much to do with his break from Mr. Nardelli’s imperial style. He took a far smaller salary ($8.9 million a year, compared with $39.7 million for Mr. Nardelli) and has earned a reputation for humility, frequently admitting to mistakes (like ill-timed clearance sales during the last quarter, which he said “weren’t the smartest thing to do”).

That kind of transparency is expected throughout tomorrow’s meeting.

What struck investors about Home Depot’s 2006 annual meeting was not just its beat-the-clock brevity, but the fact that Mr. Nardelli tossed aside such rituals as a discussion of the retailer’s performance and the presence of board members up for re-election.

Given the debate swirling around Mr. Nardelli’s pay at the time, the absence of both struck investors as an attempt to gloss over the company’s problems and deny investors a chance to question — or more likely criticize — the directors who set his pay.

This year, in a symbolic gesture, Home Depot will return to its headquarters city of Atlanta, holding its meeting at the same convention center as it did for years before Mr. Nardelli moved the event around the country.

Executives are expected to proceed at a leisurely pace, at least compared with last year’s sprint. The company expects a two-hour meeting, with Mr. Blake and his deputies expected to walk through a slide-show presentation.

And, of course, board members will be introduced, one by one, to shareholders — a moment likely to draw a combination of applause and a few jeers, given the strong emotions over their absence last year.

Brad Shaw, a spokesman for Home Depot, said the company was “looking forward to demonstrating our commitment to open, two-way communication with our shareholders.”

Several big investors who left last year’s meeting in anger are scheduled to meet with members of the board today in Atlanta to discuss proposals for corporate governance and the process of picking future directors, since four board seats will be open over the next year, according to people briefed on the matter.

One of those investors is the American Federation of State, County and Municipal Employees, which last year protested Mr. Nardelli’s pay by posting a man dressed in a chicken suit outside the Delaware gathering.

Comparing the tenure of Mr. Blake with that of Mr. Nardelli, Dan Pedrotty, director of the A.F.L.-C.I.O.’s office of investment, said “the contrast could not be any more stark in terms of the outreach to investors.”

The A.F.L.-C.I.O. had planned to introduce a proposal at tomorrow’s shareholder meeting requiring Home Depot to disclose any ties it has to the compensation consultants it hires and to explain the role of the chief executive in choosing the consultants.

But Mr. Pedrotty said that, in conversations with the company, he learned that Home Depot had already adopted the plan internally, sparing both sides a showdown at the annual meeting, so the A.F.L.-C.I.O. has withdrawn it as a shareholder proposal.

For all the progress, however, there is still some bitterness over the 2006 meeting. Mr. Ferlauto of the American Federation of State, County and Municipal Employees, said Home Depot executives and directors should express contrition, in one form or another, for last year’s conduct. “They need to do their mea culpas,” Mr. Ferlauto said.

Does that mean he expects a formal apology? “An apology is not expected,” he said, “but it would be nice to hear.”

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